Why are remittances earned by expatriates not contributing to investments?

In the economic landscape of Bangladesh, the Manpower export sector has played an extremely significant role. Primarily, mass migration for employment has been initiated since the seventies of the last century, and it has continued on a large scale. Especially in the countries of the Middle East, the initiation of manpower export took place from Bangladesh. Subsequently, this sector rapidly expanded.

At present, approximately fifteen million Bangladeshis are working in various countries around the world. The remittance sector not only contributes significantly by bringing in valuable foreign currency but also plays a crucial role in the employment sector. However, in recent times, it is observed that despite the increase in manpower exports, the volume of remittances is gradually decreasing. It is necessary to conduct a detailed investigation to understand why the amount of money sent by expatriate Bangladeshis is declining.

Many argue that expatriate Bangladeshis are indeed sending their hard-earned money back to the country, but they are doing so through informal channels, bypassing the banking system. Although specific data on this concern may not be readily available, it is challenging to dispel this apprehension completely. Currently, compared to the banking channels, the exchange rate for foreign currency in the informal market is significantly higher.

When remittances are sent through the banking channel, the exchange rate is approximately 110/112 Bangladeshi Taka per US Dollar. On the other hand, if sent through hundi (informal channels), the exchange rate is around 120/125 Bangladeshi Taka per US Dollar. It wouldn't be considered unnatural or unrealistic to term this situation as such. When a person can receive 10 or 12 Taka more by sending money through hundi, they may naturally be inclined to choose this informal method for remittance.

To prevent the transmission of money from abroad through informal channels, two actions should have been taken. Firstly, enhancing the cash incentives on remittances would have been beneficial. When expatriate Bangladeshis saw that even if they send money through banking channel, they get money equal to hundi, then they would be more interested in sending money through banking channel. Secondly, strict measures should have been implemented against those involved in hundi businesses.

Why is the hundi market thriving? My country is sending a substantial amount of money abroad every year. Similarly, a significant amount of foreign currency is entering the country through informal channels. Both of these are detrimental to the economy. The foreign currency that comes into the country through hundi does not contribute to the reserves of the Bangladesh Bank. If expatriate Bangladeshis were to send money through formal banking channels, it would add to the reserves of the Bangladesh Bank. Currently, we are not reflecting the true extent of our foreign currency reserves. At the same time, a large amount of money is leaving the country through the export of goods. There is a need to establish a mechanism to bring these funds into the country quickly.

According to some opinions, at least $12 billion of remittance income does not enter the country. If this money were to come into the country, it would significantly boost our reserves. Additionally, effective measures need to be taken to prevent the outflow of money through over-invoicing in the name of imports. The hundi market exists for the purpose of remittance. If the flow of money is stopped, the hundi business will collapse. Currently, Bangladesh's foreign currency reserves at the central bank are facing some difficulties.

Now the precarious situation of hundi traders is evident. Since the Bangladesh Bank cannot provide a sufficient supply of foreign currency, many are compelled to purchase foreign currency at a higher rate from the hundi market to meet their needs. Given the ongoing scarcity of the US dollar, even those sending money abroad for the education of students or for medical treatment are resorting to hundi. As the crisis of the US dollar continues, people are using hundi to send money abroad for various purposes.

There is a demand for the US dollar in the market, and there is an opportunity to work in both areas demand and supply. The global economic downturn is affecting the situation. This is causing a slight reduction in remittances. However, the reason for the decrease in remittances in our country is the sending of remittances through hundi. Each year, a significant number of people from Bangladesh go abroad, and they are undoubtedly working and earning money. They are sending money back home, but instead of using banking channels, they are using hundi. By sending money through hundi, they receive more local currency. Besides, hundi traders are reaching money directly to homes.

Expatriate Bangladeshis who are local beneficiaries are reluctant to go to the bank. A significant portion of the labor force sent abroad from our country every year consists of unskilled and untrained workers. They face various problems when they go abroad, and their wages are comparatively low. To address this issue, we need skilled and trained manpower for remittance. At the same time, professionals need to increasingly contribute to earning remittances abroad. However, achieving this goal cannot be accomplished overnight.

The government is making efforts to train and skill the overseas employable workforce in various ways. Different types of training centers are being established at individual levels for this purpose. However, this requires a significant amount of time. If skilled workers and professionals are sent abroad, it will undoubtedly contribute to an increase in remittances. This is a well-known fact among those involved in the matter.

A national-level plan needs to be adopted for sending skilled workers abroad. Both government and non-government initiatives should be synchronized on this matter. Currently, the manpower export program is primarily operated through private entities, leading to additional expenses for those going abroad. They become vulnerable to exploitation in various ways. If the government adopts a 'Government to Government' (G2G) method for labor export, both cost and vulnerability can be minimized. This option should be considered, although
it may not be feasible in the short term.

So, long-term planning is essential in this regard. Our country has various reputable educational institutions. For instance, some may be studying nursing, while others may be focusing on tourism. Whether one goes abroad or not often depends on the individual's circumstances. Regardless of the legitimacy of the journey, the cost of going abroad from our country is quite high. Efforts can be made to reduce these expenses. Due to the high cost, many, despite having the desire and qualifications, are unable to work abroad.

If the expenses associated with going abroad are reduced, more people would choose to work abroad, resulting in an increase in remittances. Various initiatives are being taken at the governmental level in this regard. I believe that over time, this issue may no longer persist. However, what needs to be done immediately is to ensure that remittances sent by expatriates are channeled through banking channels into the country.

In our economy, remittances play a crucial role. Remittances stand as the second-largest source of foreign currency earnings for us. While the merchandise trade account remains the top account for acquiring foreign currency, a significant portion of the foreign currency earned in this account is often utilized for importing raw materials and capital machinery. As a result, the rate of value addition in this account is comparatively lower in the national economy. However, the foreign currency income derived from the remittances account contributes almost entirely to the national economy. Simultaneously, this account significantly contributes to the creation of employment opportunities. Currently, approximately fifteen million Bangladeshis are employed in various countries around the world. If they were to remain in the country, the concern about unemployment would be even more daunting.

Our country is progressing rapidly on the path of development, with the shape of the economy expanding. In this situation, relying too much on remittances may not be sustainable for the growth of foreign currency reserves. We need to explore new avenues for earning foreign currency to ensure the stability of our foreign exchange reserves. Simultaneously, there is a need to increase the presence of locally-produced goods in the export product list, particularly those goods that are dependent on local raw materials.

Currently, Bangladesh's export industry heavily relies on the ready-made garment sector, which, in turn, depends on imported raw materials for garment production. To increase the presence of new products in the export product list, it is essential to diversify beyond industries that heavily rely on imported raw materials. Our focus should be on attracting both local and foreign investments. Adequate investment in individual accounts is crucial because without sufficient investment, new employment opportunities in different sectors will not be created. Without the creation of new job opportunities, successful poverty alleviation will be challenging to achieve.

To achieve sustainable economic development, it is crucial to ensure the optimal utilization of our local resources. The remittances account, in addition to earning foreign currency, also creates employment opportunities for a substantial number of people. To maintain the integrity of this account, efforts must be made to prevent any form of malpractice or corruption.

The question raised at various times, why are the remittances earned by expatriate Bangladeshis not coming to investment? Most of those who go abroad for employment come from poor families. They take loans and go abroad. It takes many days to repay this debt. Money has to be spent for family expenses.

Even then, the remittances sent by expatriates are being utilized in investment activities. According to a survey a few years ago, it was found that nearly 40 percent of the funds of Bangladeshi expatriates are invested. If suitable and effective investment opportunities are ensured in the country, the remittances of expatriates can be directed towards investment.

Those who move abroad for employment primarily aim to save money. Upon going abroad, the first priority is repatriating the earned money. Subsequently, efforts are made to meet the financial needs of the family. Matters such as building or renovating homes also require attention. Investing in the education of children is essential. Direct investment in business and commerce may not always be feasible. If skilled and trained manpower can be sent abroad, their remittances might contribute significantly to investments.

The majority of the workforce migrating from Bangladesh is heading to six Middle Eastern Muslim countries. If manpower is exported to Europe, America, or other developed countries, there could be a significant increase in earnings in this sector. However, the challenge lies in the fact that a considerable portion of those leaving our country for employment abroad are unskilled laborers. Apart from the Middle Eastern countries, there is not much demand for unskilled or semi-skilled workers in other countries. Therefore, they may not be able to migrate to countries like America or European nations even if they wish to.

Author: Research Director, Bangladesh Institute of Development Studies (BIDS), Dhaka.
Transcribe: M A Khaleque